Working Paper 9122top
A Different Kind Of Money Illusion: The Case Of Long And Variable Lags
by Michael F. Bryan and William T. Gavin
An analysis of how the money supply process can affect the cross-covariance structure of inflation and monetary growth, showing that the Federal Reserve's change in emphasis to monetary targeting in late 1979 could have made the apparently long lag from money growth to inflation virtually disappear in the 1980s.
PDF file 602K
Working Paper 9121top
Rising Inequality In A Salary Survey: Another Piece Of The Puzzle
by Erica L. Groshen
A study of rising wage inequality based on data from a private salary survey conducted over the last three decades.
PDF file 1,195K
Working Paper 9120top
A Dynamic Analysis Of Recent Changes In The Rate Of Part-Time Employment
by Donald R. Williams
The part-time employment rate has declined since the early 1980s, especially among females. This paper examines the decline over the 1980-1990 period, with a focus on the gender differential, using gross change data from the Bureau of Labor Statistics. Monthly transition rates between full-time employment, part-time employment, unemployment, and nonparticipation are estimated according to sex. Trend and cyclical analysis of the transition rates is conducted to identify the sources of part-time employment-rate trends and to explore gender differentials in them. The results suggest that the decline in the rate of part-time employment among females is not so much because unemployed females are more likely to move into full-time employment, but rather because females have become more likely to move from part-time to full-time employment and, most important, because they have become less likely to leave full-time employment once they get there.
PDF file 1,140K
Working Paper 9119 top
Estimating A Firm's Age-Productivity Profile Using The Present Value Of Workers' Earnings
by Laurence J. Kotlikoff and Jagadeesh Gokhale
In hiring new workers, risk-neutral employers equate the present expected value of each worker's compensation to the present expected value of higher productivity, Data detailing how present expected compensation varies with the age of hire embed, therefore, information about how productivity varies with age. This paper infers age-productivity profiles using data on the present expected value of earnings of new hires of a Fortune 1000 firm. For each of the five occupation/sex groups considered, productivity falls with age, with productivity exceeding earnings for young workers and vice versa for older workers.
PDF file 1,240K
Working Paper 9118 top
Risk Aversion, Performance Pay, And The Principal-Agent Problem
by Joseph G. Haubrich
This paper calculates numerical solutions to the principal-agent problem and compares the results to the stylized facts of CEO compensation. The numerical predictions come from parameterizing the models of Grossman and Hart and of Holmstrom and Milgrom. While the correct incentives for a CEO can greatly enhance a firm's performance, providing such incentives need not be expensive. For many parameter values, CEO compensation need only increase by about $10 for every $1,000 of additional shareholder value; for some values, the amount is 0.003 cents. The paper thus answers two challenges posed by Jensen: that principal-agent theory does not yield quantitative predictions, and that CEO compensation is insufficiently sensitive to firm performance.
PDF file 910K
Working Paper 9117 top
Inefficiency And Productivity Growth In Banking: A Comparison Of Stochastic Econometric And Thick Frontier Methods
by Paul W. Bauer, Allen N. Berger, and David B. Humphrey
A comparison of alternative methods for estimating inefficiency and productivity growth in banking, showing that inefficiencies are sufficiently large to dominate scale economies and that measured technological progress has been small, or even negative, as a result of institutional events that occurred during 1977-88.
PDF file 1,455K
Working Paper 9116 top
The Sources And Nature Of Long-Term Memory In The Business Cycle
by Joseph G. Haubrich and Andrew W. Lo
This paper examines the stochastic properties of aggregate macroeconomic time series from the standpoint of fractionally integrated models, focusing on the persistence of economic shocks. We develop a simple macroeconomic model that exhibits long-range dependence, a consequence of aggregation in the presence of real business cycles. We then derive the relation between properties of fractionally integrated macroeconomic time series and those of microeconomic data and discuss how fiscal policy may alter the stochastic behavior of the former. To implement these results empirically, we employ a test for fractionally integrated time series based on the Hurst-Mandelbrot rescaled range. This test, which is robust to short-term dependence, is applied to quarterly and annual real GNP to determine the sources and nature of long-term dependence in the business cycle.
PDF file 1,565K
Working Paper 9115 top
On The Econometrics Of World Business Cycles
by Finn E. Kydland
A description of the method used in dynamic general equilibrium business-cycle research as applied in some recent work on open economies.
PDF file 520K
Working Paper 9114 top
Local Banking Markets And Firm Location
by Paul W. Bauer and Brian A. Cromwell
A study of the effects of bank structure and profitability on the births of new firms, arguing that local credit markets potentially affect firm location decisions.
PDF file 730K
Working Paper 9113 top
Zero Inflation: Transition Costs And Shoe-Leather Benefits
by Charles T. Carlstrom and William T. Gavin
A comparison showing that the transition costs of indexing inflation (a major obstacle to monetary policy reform) are approximately equal to the minor shoe-leather benefits of having price stability.
PDF file 810K
Working Paper 9112 top
Troubled Savings And Loan Institutions: Voluntary Restructuring Under Insolvency
by Ramon P. DeGennaro, Larry H. Lang, and James B. Thomson
Regulatory agencies are unwilling or unable to close thrift institutions immediately upon insolvency. Instead, they have progressively reduced the thrift capital requirement, refrained from enforcing that requirement, and allowed thrifts to hold more nonmortgage loans in the hope that the industry would recover. According to this study, only 13 percent of the largest 300 firms eventually recovered between the end of 1979 and the end of 1989. When the thrift crisis surfaced in the early 1980s, the firms that ultimately recovered operated in a fashion similar to those that eventually failed. But in the mid-1980s, recovered thrifts pursued a risk-minimizing strategy, while nonrecovered thrifts pursued a risky, high-growth strategy. We find no evidence that managers of unsuccessful firms consumed more perquisites than their successful counterparts.
PDF file 1,270K
Working Paper 9111 top
Optimal Bank Portfolio Choice Under Fixed-Rate Deposit Insurance
by Anlong Li
This paper analyzes the optimal investment decisions of insured banks under fixed-rate deposit insurance. In the presence of charter value, trade-offs exist between preserving the charter and exploiting deposit insurance. Allowing banks to dynamically revise their asset portfolios has a significant impact on both the investment decisions and the fair cost of deposit insurance. The optimal bank portfolio problem can be solved analytically for constant charter value. The corresponding deposit insurance is shown to be a put option that matures sooner than the audit date. An efficient numerical procedure is also developed to handle more general situations.
PDF file 760K
Working Paper 9110 top
On Flexibility, Capital Structure, And Investment Decisions For The Insured Bank
by Peter Ritchken, James Thomson, Ray DeGennaro, and Anlong Li
Most models of deposit insurance assume that the volatility of a bank's assets is exogenously provided. Although this framework allows the impact of volatility on bankruptcy costs and deposit insurance subsidies to be explored, it is static and does not incorporate the fact that equityholders can respond to market events by adjusting previous investment and leverage decisions. This paper presents a dynamic model of a bank that allows for such behavior. The flexibility of being able to respond dynamically to market information has value to equityholders. The impact and value of this flexibility option are explored under a regime in which flat-rate deposit insurance is provided.
PDF file 600K
Working Paper 9109 top
The Risk Premium In Forward Foreign Exchange Markets And G-3 Central Bank Intervention: Evidence Of Daily Effects, 1985-1990
by Richard T. Baillie and William P. Osterberg
Evidence that forward rates for foreign exchange are not unbiased forecasts of future spot rates suggests a time-varying risk premium. However, there is little evidence that the forecast error is related to fundamentals, although most investigations have lacked high-frequency data. In this paper, we use daily exchange-rate and official Federal Reserve intervention data to test for an impact of intervention on the forecast error. This paper extends recent analyses of daily changes in exchange rates by Baillie and Bollersev (1989) and Hsieh (1989) to the daily forward-rate forecast errors for the dm/US$ and yen/US$ rates. We estimate an MA(21) process and utilize GARCH with a conditional student-t distribution. We find that 1) U.S. purchases of dollars on day t-1 affect the day t forecast error (ft-Et[st+k]), 2) there are day-of-the-week effects in the conditional variance, and 3) for the yen/US$ rate, there is GARCH-in-mean. These findings provide some support for considering intervention as a channel through which fundamentals influence risk premia
PDF file 765K
Working Paper 9108 top
Bracket Creep In The Age Of Indexing: Have We Solved The Problem?
by David Altig and Charles T. Carlstrom
Indexation of the personal tax code for price-level changes represents one of the most significant elements of U.S. tax legislation in the 1980s. However, because the indexation provisions do not adjust personal tax-rate schedules contemporaneously, bracket indexation remains incomplete. This paper argues that, even ignoring the remaining problems associated with capital-income measurement, depreciation provisions, and so on, the potential distortionary costs of inflation/tax-system interactions remain high.
PDF file 850K
Working Paper 9107 top
Generational Accounting: A New Approach For Understanding The Effects Of Fiscal Policy On Saving
by Alan J. Auerbach, Jagadeesh Gokhale, and Laurence J. Kotlikoff
An application of generational accounting to fiscal policies that feature intergenerational redistribution. The authors consider different policies, only some of which show up as a change in the deficit, and explore their impact on the net national saving rate.
PDF file 1,030K
Working Paper 9106 top
Principal-Agent Problems In Commercial-Bank Failure Decisions
by Asli Demirguc-Kunt
The author develops a model that examines the regulator's role in the bank failure decision process, with attention given to the regulator's constraints and incentives.
PDF file 1,405K
Working Paper 9105 top
Magnification Effects And Acyclical Real Wages
by Charles T. Carlstrom and Edward N. Gamber
An analysis of a one-period, two-sector model in which firms must pay a fixed cost of hiring. The authors show that this type of model results in more employment variability and less-procyclical wages than do models without fixed hiring costs.
PDF file 765K
Working Paper 9104 top
On The Valuation Of Deposit Institutions
by Asli Demirguc-Kunt
The author develops an empirical model to value a financial institution's capital for regulatory purposes, which when estimated for a sample of failed and nonfailed institutions, reveals the need for a market-value accounting approach to capital.
PDF file 1,510K
Working Paper 9103 top
Generational Accounts: A Meaningful Alternative To Deficit Accounting
by Alan J. Auerbach, Jagadeesh Gokhale, and Laurence J. Kotlikoff
A presentation of a set of generational accounts that can be used as an alternative to the federal budget deficit in assessing intergenerational policy, concluding that the fiscal burdens on future generations will be significantly larger than those on existing generations if current tax policy remains unchanged.
PDF file 1,965K
Working Paper 9102 top
Inflation, Personal Taxes, And Real Output: A Dynamic Analysis
by David Altig and Charles T. Carlstrom
An examination, using the overlapping-generations approach, of how the interactions between inflation and the nominal taxation of capital income affect the cyclical behavior of the U.S. economy.
PDF file 1,315K
Working Paper 9101 top
Risk-Based Capital And Deposit Insurance Reform
by Robert B. Avery and Allen N. Berger
Risk-based capital (RBC) is an important component of deposit insurance reform. This paper provides an empirical analysis of the new 1992 RBC bank standards, applying them to data on virtually all U.S. banks from 1982 to 1989. The data reveal strong associations between several measures of future bank performance (including bankruptcy) and the RBC relative risk weights. These associations suggest that the weights constitute a significant improvement over the old capital standards, although there are several instances in which the weights for specific categories appear to be out of line with the performance results. Tests of the informational value of passing or failing the new and old capital standards show that both have independent information, but that the new RBC standards better predict future bank performance problems. The data also indicate that, in contrast to the old standards, the RBC capital burden falls much more heavily on large banks. As a result, banks representing more than one-fourth of all bank assets would have failed the new RBC standards as of 1989. The new standards are also more stringent overall. More banks would have failed the new standards than the old ones, with larger average capital deficiencies.
PDF file 1,740K
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